To no one's surprise, Wall Street punished shares of Yahoo (NASDAQ: YHOO) in early trading Wednesday after the company reported fourth-quarter results showing an increase in earnings, but a troubling decline in revenue.
By mid-day, YHOO shares were down 44 cents, or 2.75 percent, to 15.58. The stock had hit as low as 15.41 in morning trading. More than 34 million shares had traded hands by 12:45 p.m., putting the stock on a pace for its most heavily traded day in more than two months.
While Yahoo's Q4 net income of $312 million, or 24 cents a share, more than doubled the year-ago quarterly earnings of $153 million, or 11 cents a share, net revenue fell 4 percent to $1.205 billion from $1.26 billion in the fourth quarter of 2009. Worse, the company's gross income -- excluding revenue it shares with Microsoft as part of a search agreement -- of $1.525 billion was down 12 percent from the year-ago quarter, and it was the lowest quarterly gross revenue in at least two years.
(Also see: Yahoo's Q4 net revenue down 4%, shares plunge after hours)
Yahoo's profit is up in large part because of cost-cutting, including the layoffs of 650 to 700 employees in December (and another 100 to 150 announced Tuesday). But in an online environment where advertising is rebounding and rivals such as Google and Facebook are reaping the benefits of this recovery, Yahoo is falling further behind, even as it reported a 14 percent gain in online display ad revenue.
All of which leaves CEO Carol Bartz in an increasingly untenable position. Hired two years ago to turn around the listless and directionless Internet giant -- not to mention the company's stagnating stock price -- she so far has failed to deliver, other than managing to cut costs. That only works for so long.
In an earnings conference call Tuesday, Bartz said, "We're not trying to cut our way to revenue growth. We're investing for future revenue growth."
Yet in announcing Tuesday's layoffs, the company said, "The personnel changes we are making are part of our ongoing strategy to best position Yahoo! for revenue growth and margin expansion and to support our strategy to deliver differentiated products and experiences to the marketplace."
That's, word for word, the exact thing Yahoo said in a statement announcing December's layoffs. Maybe they laid off the PR people.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.